wsj: Dick Armey on Hayek vs. Keynes

According to Nobel economist Fredrick Hayek, a contemporary of Keynes and perhaps his greatest critic, Keynes “was guided by one central idea . . . that general employment was always positively correlated with the aggregate demand for consumer goods.” Keynes argued that government should intervene in the economy to maintain aggregate demand and full employment, with the goal of smoothing out business cycles. During recessions, he asserted, government should borrow money and spend it.

Keynes’s thinking was a decisive departure from classical economics, because arbitrary “macro” constructs like aggregate demand had no basis in the microeconomic science of human action. As Hayek observed, “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”

7 Responses to wsj: Dick Armey on Hayek vs. Keynes

My thoughts these days:
Government is singularly purposed to intervene. Intervene for the good of those they serve… as opposed to serving the supporting systems themselves or the resulting economy.

Economies exist in relation to goods, services, people, places and other things. These things are More Than just Things. Limited consideration of the intrinsic/personal value of Things directly limits the systems & economies that surround them.

Good times are short lived as systems (e.g. the economy) is elevated to primary while the foundational things (people, property, goods, services, etc.) are just the supporting cast.

A homeless man once told me this inversion was founded in greed. I don’t know, but the enduring disparity between the poor and the wealthy creates a window to see a flaw of undervaluing important Things.

Another once said to me: “You have much while some have nothing.” And this corporate shame broke my heart. Wealth and poverty are not problems to fix, but the flaw of reducing Things should be.

At the risk of sounding stupid, is there a simple explanation about why people look to Hayek rather than Mises as the appropriate intellectual counterweight to Keynes? I’ve seen this Hayek vs Keynes meme emerge recently, and I’m just trying to figure out why it’s Hayek rather than some other Austrian heavyweight.

1. Hayek was the first to developed a sophisticated Austrian Trade Cycle Theory — helping to revolutionize modern economics along the way, with his effort to add a time dimension to growth theory and equilibrium economics. Before Hayek, Austrian Trade Cycle Theory was a couple sentence insight in Mises, which Mises had yet to be cashed out.

2. Hayek destoyed Keynes’ “Treatise” in a long and detailed set of articles published in the early 1930s — and then Hayek went to work attacking the very foundations of Keynes’ work, in a series of landmark papers on “the division of knowledge” and the role of the price system, among other papers. Mises never took on Keynes in as direct a fashion as Hayek.

Those two points are the start of an answer.

Rusty wrote:

“At the risk of sounding stupid, is there a simple explanation about why people look to Hayek rather than Mises as the appropriate intellectual counterweight to Keynes? I’ve seen this Hayek vs Keynes meme emerge recently, and I’m just trying to figure out why it’s Hayek rather than some other Austrian heavyweight.”

I think there are two main reasons. First Hayek came to the UK and taught at the London School of Economics. He was part of a team which argued against the ideas coming out of Cambridge and Keynes, so there was a Hayek v Keynes debate in a way that there was not a Mises v Keynes one.

Second I think that Mises tended to adopt a rather agressive tone in his writing, whereas Hayek always wrote in a scholarly and moderate tone.

I disagree with the part about the Nobel Prize; back in Hayeks’ time it did, indeed, mean something. Today however, it is a rather prize of rather dubious distinction as one can witness from the last Nobel recipient for Economics, the clueless Paul Krugman.